Focus On Newer Construction

One of the things that I've been watching for the past several months is what's been happening in the market for newer homes in our market. We have seven or eight developments that have been built or are still building in our market over the past 8-10 years.

We have an interesting dynamic happening right now, both in our market and nationally. A lot of the newer developments out there were selling houses like they were brownies at a Grateful Dead show when our market was at its peak. This was the period when just about the only qualification needed to get a mortgage was the ability to fog a mirror, so there were some pretty risky loans made on a lot of these homes. You can probably guess where I'm going with this.

I took a look at homes in our market built since 2000, and I've eliminated homes that are being offered or were sold by the builder - I want to strictly look at resales here. As of today, we have 14 such homes on the market. Eight of those homes are short sales. At this point, none of them are REO's, which is kind of odd. I know of a couple of REO's that are coming up that will fit in this category, but they aren't available yet. We only have 3 pending units in this category, and two of those are REO's (no short sales).

Over the past year, we saw 44 sales of newer homes in our market, but 19 of those were sold by the builder, so that leaves 25. Of those, 15 were REO's and 7 were short sales. That REO number tracks almost identically with the market as a whole, but the short sales were a little higher than the norm in this segment. And the active listings would indicate that we can expect these numbers to get worse in the coming months.

Anytime distressed sales dominate a market, you're going to see some significant price erosion. In this case, it's not as bad as the market as a whole. Looking at sales from the peak period in late 2005, it looks like this segment has lost about 35-40% of value from the peak, while the market as a whole is closer to 50%. This shouldn't be surprising - as a rule, the newer the house, the better it holds value or appreciates. I would expect that when our market does start to recover, these homes will probably lead the charge.

Next week, I'm going in completely different direction - the "Focus On" post is going to take a look at Mission Hills. Be afraid.